Yinson Annual Report 2020

172 Yinson Holdings Berhad SECTION 6 GOVERNANCE & LEADERSHIP Three lines of defence model The Group adopts a ‘Three Lines of Defence’ approach for its risk management. It provides an overview of the Group’s operations from a risk management perspective while assuring the ongoing success of risk management initiatives. • Business units own and manage the risks as a first line of defence with their vast operational experience. • The heads of business units are accountable for all risks and internal controls under their respective areas of responsibility. • Based on the structured risk management approach, the business units apply relevant risk responses to their respective key risks. line of defence 1 st • The Risk Department provides an oversight and monitoring function as a second line of defence to facilitate the implementation and monitoring of an effective risk management framework within the Group. line of defence 2 nd • Internal Audit reviews the control effectiveness and provides independent assurance to the Board and Management on the effectiveness of the business units and support functions’ governance, risk management and internal controls practices. line of defence 3 rd statement on Risk Management and Internal Control KEY RISK FACTORS OF FYE 2020 Risk Description Mitigation achieved in FYE 2020 Project concentration risk Some of the Group’s contracts are coming to an end, potentially creating reliance on a small number of projects Identified additional sources of income to avoid over-reliance on any single project: • Successfully established presence in Brazil region through a Contract Award for FPSO Anna Nery (Marlim 2) project in Brazil • Established Renewables Division as a long-term strategy of diversification Project cost overrun risk As FPSO projects are typically long-term in nature, project cost overruns could have a negative impact on the project profit margins and affect the cash flows of the Group • Continuous review and improvement of project cost management • Ongoing building of project team for FPSO Anna Nery (Marlim 2) project • Ongoing digitalisation of business processes and systems Investment evaluation risk Ineffective evaluation on potential investments could lead to poor investment decisions which may in turn negatively affect investment returns The Group’s investment evaluation process is guided by the Group Investment Policy, which is reviewed periodically to ensure that the processes are kept up to date with industry best practices